Humana Reports Second Quarter Results
LOUISVILLE, Ky., Aug. 3 /PRNewswire/ -- Humana Inc. (NYSE: HUM) today reported operating earnings of $.11 per diluted share for the second quarter ended June 30, 2000, in line with consensus estimates.
These results compare to operating earnings of $.17 per diluted share for the second quarter of 1999. (Second quarter 1999 earnings per diluted share were $.01 excluding the beneficial effects from previously established premium deficiency and severance charges, favorable development in the company's workers' compensation liabilities, and non-recurring investment gains.)
Net income for the second quarter of 2000 was $19 million, compared to earnings of $28 million for the same period in the prior year.
The company is in the process of eliminating non-core business primarily through market exits and sales, with many of the steps needed to accomplish these exits and sales having taken place during the second quarter of 2000.
"We are successfully focusing on the basics," said Michael B. McCallister, Humana's president and chief executive officer. "In addition to downsizing our non-core operations, we are also ensuring that we price the business right, pay claims timely and accurately, eliminate ineffective risk arrangements, improve provider contracting, and e-enable our business processes.
"By executing on these initiatives, we are turning Humana around while simultaneously repositioning the company to grow profitability when the turnaround is complete."
Revenue and Membership
Revenue in the second quarter increased 7.6 percent from the year ago quarter to $2.7 billion, primarily driven by significant increases in premium yields.
Commercial premium yields averaged 12.0 percent for the second quarter, compared to 6.9 percent for the same period in the prior year. Due to the impact that premium increases had on member retention, Humana's commercial membership was 2,844,500, a 4.5 percent decline sequentially.
Medicare premium yields rose to 6.3 percent in the second quarter of 2000 versus 3.0 percent for the prior year quarter, the result of a new pricing component implemented in the first quarter of 2000 -- member premiums -- and improvement in the mix of members in markets with higher HCFA reimbursement rates. On June 30, 2000 the company announced its intent to exit 45 Medicare counties January 1, 2001, affecting 84,000 members.
Medical and Administrative Expenses
The company's medical expense ratio for the second quarter was 85.0 percent, versus ratios of 85.1 percent for the same period in 1999 and 85.0 percent in the first quarter of 2000. Sequential increases in Medicare hospital inpatient costs were offset by declines in commercial inpatient and outpatient cost trends. Pharmacy cost trends declined 180 basis points to 7.4 percent for the company's commercial business as a higher percentage of members moved to a three-tier benefit. The planned reduction in the company's higher cost non-core operations also helped improve medical costs during a quarter with traditionally higher seasonality.
Planned spending on infrastructure and technology initiatives resulted in a sequential increase of 20 basis points in the company's administrative expense ratio, to 15.0 percent. This compares to 14.8 percent in the first quarter of 2000 and 14.6 percent from the year-ago quarter.
The company's effective tax rate of 21 percent for the second quarter of 2000 was unchanged from that reported for the first quarter of 2000 and compares to 35 percent for the second quarter of 1999. The lower effective tax rate for 2000 results from the implementation of certain tax planning strategies related to the disposition of the company's workers' compensation business.
Cash flows
Excluding timing of the receipt of the Medicare premium payment from HCFA and the impact of the company's recent $15 million settlement for Medicare overpayments, cash flows provided by operations totaled $67 million in the second quarter of 2000.
Highlights from Operating Divisions
Health Plan Division
Large Group Commercial
-
Premium yields were in the 10 to 11 percent range in the second quarter of 2000 consistent with the first quarter of 2000 range. Approximately 60 percent of this line of business renews in the first quarter each year.
* Membership declined 2.8 percent to 1,369,000 from 1,409,000 at March 31,
2000 as the company experienced modest attrition in this aspect of its
core business from premium rate increases.
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Medical cost trends were in the 6 to 7 percent range for the second quarter of 2000 compared to a range of 7 to 8 percent in the first quarter of 2000 and a range of 9 to 10 percent in the second quarter of 1999.
Medicare
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Premium yields were 6.3 percent in the second quarter of 2000 compared to 6.2 percent in the first quarter of 2000.
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Membership increased sequentially 0.8 percent or 4,100 members to 522,100 as of June 30, 2000, primarily in core markets.
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Medical cost trends were in the 7 to 8 percent range in the second quarter of 2000 compared to a range of 6 to 7 percent for the first quarter of 2000 and 3 to 4 percent for the second quarter of 1999. Excluding counties that the company intends to exit on January 1, 2001, medical cost trends were in the 6 to 7 percent range.
Small Group Division
Small Group Commercial
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Premium yields were in the 13 to 14 percent range in the second quarter of 2000 compared to a range of 12 to 13 percent in the first quarter of 2000, continuing the acceleration of rates for the small group segment.
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Membership declined sequentially approximately 93,000 or 5.9 percent due to continued attrition in reaction to significant rate increases.
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Medical cost trends were in the 11 to 12 percent range in the second quarter of 2000 compared to 12 to 13 percent in the first quarter of 2000 and in the second quarter of 1999.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded managed health care companies, with approximately 5.8 million medical members located primarily in 15 states and Puerto Rico. Humana offers coordinated health insurance coverage through a variety of plans
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health maintenance organizations, preferred provider organizations, point- of-service-plans and administrative service products -- to employer groups, government-sponsored plans and individuals.
More information regarding Humana is available via the Internet at www.humana.com , including on-line copies of our annual report to shareholders, Form 10-K, Form 10-Qs, proxy statement, and recent presentations to investor groups.
This news release contains forward-looking statements. The forward- looking statements made in this news release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described in Humana's annual report on Form 10-K for the year ended December 31, 1999 and in Humana's quarterly report on Form 10-Q for the quarter ended March 31, 2000, as filed with the Securities and Exchange Commission.
Summary of operating results for the three months ended June 30:
2000 1999
Revenues $ 2,696,000,000 $ 2,505,000,000
Income before income taxes $ 24,000,000 $ 44,000,000 (a)
Net income $ 19,000,000 $ 28,000,000 (a)
Basic earnings per common
share $ .11 $ .17 (a)
Diluted earnings per common
share $ .11 $ .17 (a)
Shares used in basic earnings
per common share computation 167,740,000 167,576,000
Shares used in diluted earnings
per common share computation 167,740,000 168,153,000
(a) Includes $41 million ($27 million after tax, $.16 per diluted share)
related to the beneficial effects of the previously established
premium deficiency and severance charges, favorable liability
development in the company's run-off workers' compensation business
and non-recurring investment gains.
Summary of operating results for the six months ended June 30:
2000 1999 (b)
Revenues $ 5,338,000,000 $ 4,982,000,000
Income before income taxes $ 51,000,000 $ 19,000,000 (c)
Net income $ 40,000,000 $ 12,000,000 (c)
Basic earnings per common
share $ .24 $ .07 (c)
Diluted earnings per common
share $ .24 $ .07 (c)
Shares used in basic earnings
per common share computation 167,746,000 167,568,000
Shares used in diluted earnings
per common share computation 167,796,000 168,475,000
(b) Includes additional medical claims expense of $90 million ($58 million
after tax, or $.34 per diluted share) and a $12 million ($8 million
after tax, or $.04 per diluted share) gain on the sale of a tangible
asset.
(c) Includes $52 million ($34 million after tax, $.20 per diluted share)
related to the beneficial effects of the previously established
premium deficiency and severance charges, favorable liability
development in the company's run-off workers' compensation business
and non-recurring investment gains.
Humana Inc.
Dollars in millions, except per share results
Three months ended Six months ended
June 30, June 30,
Summarized Operating
Results 2000 1999 2000 1999(a)
Revenues:
Premiums $ 2,666 $ 2,461 $ 5,277 $ 4,889
Interest 27 40 56 74
Other income 3 4 5 19
Total revenues 2,696 2,505 5,338 4,982
Operating expenses:
Medical 2,265 2,094 4,485 4,230
Selling, general and
administrative 363 329 716 654
Depreciation and
amortization 37 30 71 61
Total operating
expenses 2,665 2,453 5,272 4,945
Income from operations 31 52 66 37
Interest expense 7 8 15 18
Income before income
taxes 24 44 51 19
Provision for income
taxes 5 16 11 7
Net income $ 19 $ 28 $ 40 $ 12
Basic earnings per
common share $ 0.11 $ 0.17 $ 0.24 $ 0.07
Diluted earnings per
common share $ 0.11 $ 0.17 $ 0.24 $ 0.07
Shares used in basic
earnings per share
computation (000) 167,740 167,576 167,746 167,568
Shares used in diluted
earnings per share
computation (000) 167,740 168,153 167,796 168,475
Medical expense ratio 85.0% 85.1% 85.0% 86.5%
Administrative expense
ratio 15.0% 14.6% 14.9% 14.6%
(a) Includes expenses of $90 million ($58 million after tax, or $.34 per
diluted share) primarily related to premium deficiency and medical
reserve strengthening and a $12 million ($8 million after tax, or
$.04 per diluted share) gain on the sale of a tangible asset.
Premiums
Health Plans:
Large group
commercial $ 608 $ 591 $ 1,207 $ 1,184
Medicare HMO 837 727 1,640 1,446
Medicaid 188 150 359 293
TRICARE 227 202 433 402
Medicare supplement
and Workers'
compensation 27 28 54 55
Total Health Plans 1,887 1,698 3,693 3,380
Small Group:
Small group
commercial 719 707 1,463 1,399
Specialty 60 56 121 110
Total Small Group 779 763 1,584 1,509
Total premiums $ 2,666 $ 2,461 $ 5,277 $ 4,889
June 30, December 31,
Financial Position 2000 1999
Assets:
Cash and investments $ 2,317 $ 2,738
Property and equipment, net 425 418
Other assets 1,605 1,744
Total assets $ 4,347 $ 4,900
Liabilities and equity:
Medical expenses payable,
current portion $ 1,356 $ 1,432 (b)
Other liabilities 1,680 2,200
Equity 1,311 1,268
Total liabilities and equity $ 4,347 $ 4,900
(b) Excluding the current portion of workers' compensation liabilities,
medical expenses payable would have been $1,324 at December 31, 1999.
Humana Inc.
Dollars in millions, except per share results
Three months ended Six months ended
June 30, June 30,
Summarized Operating Results
(excluding non-
recurring items) 2000 1999 2000 1999(c)
Revenues:
Premiums $ 2,666 $ 2,461 $ 5,277 $ 4,889
Interest 27 40 56 74
Other income 3 4 5 7
Total revenues 2,696 2,505 5,338 4,970
Operating expenses:
Medical 2,265 2,094 4,485 4,140
Selling, general and
administrative 363 329 716 654
Depreciation and
amortization 37 30 71 61
Total operating
expenses 2,665 2,453 5,272 4,855
Income from
operations 31 52 66 115
Interest expense 7 8 15 18
Income before income taxes 24 44 51 97
Provision for income
taxes 5 16 11 36
Net income $ 19 $ 28 $ 40 $ 61
Basic earnings per
common share $ 0.11 $ 0.17 $ 0.24 $ 0.37
Diluted earnings per
common share $ 0.11 $ 0.17 $ 0.24 $ 0.37
Shares used in basic
earnings per share
computation (000) 167,740 167,576 167,746 167,568
Shares used in diluted
earnings per share
computation (000) 167,740 168,153 167,796 168,475
Medical expense ratio 85.0% 85.1% 85.0% 84.7%
Administrative expense
ratio 15.0% 14.6% 14.9% 14.6%
(c) Excludes expenses of $90 million ($58 million after tax, or $.34 per
diluted share) primarily related to premium deficiency and medical
reserve strengthening and a $12 million ($8 million after tax, or
$.04 per diluted share) gain on the sale of a tangible asset.
Three months ended Six months ended
June 30, June 30,
Operating Cash Flows 2000 1999 2000 1999
Net income $ 19 $ 28 $ 40 $ 12
Adjustments to reconcile
net income to net
cash provided by
(used in) operating activities:
Depreciation and
amortization 37 30 71 61
Deferred income tax
provision (4) (7) 1 3
Gain on sale of a
tangible asset -- -- -- (12)
Gain on sale of
marketable securities -- (11) (1) (12)
Payment for government
audit settlement (15) -- (15) --
Changes in operating
assets and liabilities
excluding effects of
acquisitions and divestitures:
Premiums receivable 9 -- (39) (2)
Other assets (8) 6 (16) --
Medical and other
expenses payable 7 (99) (19) (48)
Workers' compensation
run out claims
reduction -- (43) (30) (76)
Trade accounts payable
and accrued expenses 10 (21) (62) (27)
Unearned premium
revenues (5) -- 48 (227)
Income taxes payable 7 19 8 38
Other (5) 1 (4) 1
Net cash provided by
(used in) operating
activities $ 52 $ (97) $ (18) $ (289)
Timing of Medicare
premium payment -- -- (19) 235
Workers' compensation
liability payments -- 33 30 61
Pro forma net cash provided
by (used in) operating
activities $ 52 $ (64) $ (7) $ 7
Humana Inc.
In thousands
June 30, Percent
Ending Medical
Membership 2000 1999 Difference Change
Health Plans:
Large group
commercial 1,369.0 1,478.3 (109.3) (7.4)
Medicare HMO 522.1 484.8 37.3 7.7
Medicaid 675.1 (d) 658.5 16.6 2.5
TRICARE 1,049.1 1,064.6 (15.5) (1.5)
Administrative
services 655.7 (e) 636.7 19.0 3.0
Medicare supplement 38.8 (e) 48.7 (9.9) (20.3)
Total Health Plans 4,309.8 4,371.6 (61.8) (1.4)
Small Group:
Small group
commercial 1,475.5 1,695.7 (220.2) (13.0)
Total ending medical
membership 5,785.3 6,067.3 (282.0) (4.6)
June 30, Percent
Ending Specialty
Membership 2000 1999 Difference Change
Health Plans:
Workers' compensation -- 441.4 (441.4) --
TRICARE dental 28.8 29.3 (0.5) (1.7)
Total Health Plans 28.8 470.7 (441.9) (93.9)
Small Group:
Dental 1,685.2 1,482.0 203.2 13.7
Group Life 737.5 823.5 (86.0) (10.4)
Other 40.0 61.4 (21.4) (34.9)
Total Small Group 2,462.7 2,366.9 95.8 4.0
Total ending specialty
membership 2,491.5 2,837.6 (346.1) (12.2)
Three months ended Six months ended
June 30, June 30,
Average Medical
Membership 2000 1999 2000 1999
Health Plans:
Large group
commercial 1,386.5 1,494.0 1,377.0 1,500.1
Medicare HMO 522.8 483.2 510.3 481.4
Medicaid 667.6 653.3 650.9 650.1
TRICARE 1,051.7 1,069.7 1,055.4 1,077.7
Administrative
services 656.9 628.9 653.8 620.0
Medicare supplement 39.7 50.2 40.9 52.0
Total Health Plans 4,325.2 4,379.3 4,288.3 4,381.3
Small Group:
Small group commercial 1,509.2 1,681.8 1,558.6 1,680.9
Total average medical
membership 5,834.4 6,061.1 5,846.9 6,062.2
(d) 96,300 North Florida Medicaid members were transferred on July 1, 2000
effective with the sale of this business to HealthEase of Florida,
Inc., an affiliate of WellCare HMO Inc.
(e) Substantially all Medicare Supplement members were transferred to
Administrative services on July 1, 2000 effective with the reinsurance
of this business to United Teacher Associates Insurance Company.
SOURCE Humana Inc.